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BITS; Netflix's Deal With Warner

By BRAD STONE

Published: January 11, 2010

Last week, Netflix cut a deal with Warner Brothers that will delay the availability of new Warner movies to Netflix subscribers by almost a month but expand the number of older Warner films available for digital streaming.

Whether this is good for Netflix subscribers depends entirely on how they use the service.

The deal was a compromise, according to interviews with Kevin Tsujihara, president of home entertainment for Warner Brothers, and Reed Hastings, Netflix's chief executive. Warner, Mr. Tsujihara said, didn't want the availability of its films on Netflix to prevent people from paying full price to buy DVDs in stores.

''We wanted to create as much headway as we could for that higher-margin business,'' he said.

Warner was willing to give Netflix a lower unit price on its discs if the company agreed to delay giving out new releases to subscribers.

Mr. Hastings said Hollywood studios looked fondly on their business in Europe, which has no first-sale doctrine, a provision of American copyright law that allows a disc purchaser, like Netflix, to sell or rent out a lawfully purchased copy without permission. As a result, in Europe, the studios can sell DVDs first while they make rental and subscription services wait a few weeks.

He said Netflix was willing to compromise on the issue because ''our No. 1 objective now is expanding the digital catalog.'' Netflix's streaming service won't receive any newer movies from Warner, but it will get a larger piece of the Warner back catalog.

And because Netflix is getting a better price on discs and can therefore buy more, it says subscribers will soon encounter virtually no wait times when they want to get the most popular Warner new releases.

As for whether other major Hollywood studios will follow suit, Mr. Hastings said they were likely to be watching the result of the deal closely. BRAD STONE

COMMENTI don't know how the media companies get the idea that they can force consumers to do something they don't want to do (buy a DVD) by delaying the availability of rentals or streaming. JAS, Jan. 8